Apocalypse now for internet companies

Apocalypse now for internet companies
By Philip Delves Broughton in New York

October 12, 2000

AS technology stocks fell further yesterday and another high-profile internet venture shut down, Manhattan was gripped by talk of an "internet apocalypse".

The Nasdaq, which lists the bulk of new technology stocks, is dropping towards 3,000, having hit 5,000 earlier this year. The employees of Urbanfetch, meanwhile, a much-vaunted on-line business set up by a group of former Goldman Sachs bankers, are looking for new jobs.

Urbanfetch had promised to deliver anything - from milk to flowers to videos - within an hour of its customers placing their order online. But on Tuesday afternoon employees were told the site was closing and not to bother coming in yesterday. Urbanfetch would now focus exclusively on its express delivery service for businesses.

Under the headline "Netflop!", The New York Observer reported yesterday: "There is an Internet apocalypse going on out there. It is impossible to deny, no matter how cheerily the chief executives and their flacks try to spin a layoff of half their staff as 'a restructuring' that 'will help us win profitability', that the big shakeout is here."

Scott Durkin, chief operating officer at the Corcoran Group, Manhattan's leading estate agencysaid: "Anyone still in the markets these days is a risk-taker. The people driving the property market are those who cashed out of the stock markets a year ago. It is not the place to be any more."

From New York to San Francisco internet employees are sifting through the rubble. The Industry Standard, the most widely read magazine dealing with the new economy, now runs a dot-com layoff tracker on its website. The picture is bleak. Since Oct 5, 175 dotcom companies have laid off nearly 20,000 employees. Law firms, banks and old media companies who saw many of their staff dive into the internet gold rush are now welcoming them back.

A prominent victim of the crash is Josh Harris. Having made well over #40 million in a series of early internet businesses, he set himself up in a cavernous Manhattan loft, which became a hub for contemporary artists and musicians. He threw exotic parties, which he filmed and broadcast over the internet via his company Pseudo Programs.

Harris told The Washington Post: "I'm going after Ted and Rupert," referring to the media moguls, Turner and Murdoch. "I can play this game and they're not laughing." On Tuesday, Pseudo Programs filed for bankruptcy, and laying off the last of its 175 employees. A chastened Harris plans to move to an apple farm.

As recently as six months ago, Jay Walker, the founder of Priceline.com was being hailed as a business genius. His company began by selling cheap airline tickets on-line and then expanded into groceries and petrol. In April last year, its stock was trading at $162.38 (#116).

Yesterday, it was trading at just over $6 per share, $10 less than its offer price. At its height, it was valued at more than $23 billion. Now it is worth less than $1 billion. One famous victim of Priceline's slump is William Shatner, who played Captain Kirk in Star Trek. Shatner agreed to be Priceline's public face in return for stock options rather than pay. While he cashed in nearly half of his 125,000 shares before the stock plunged, he still holds about 65,000.
Lauren Levitan, an analyst with Robertson Stephens, said "The rules have changed. None of these companies raised money with the promise they would be profitable. But now the market is inhospitable to any business that is not profitable or, at least, has a clear path to profitability."

\Ironically, just as online retailers such as Priceline are closing consumers are using the internet more than ever. Forrester Research estimates that 11 million American households will buy goods online this year and that average online spending per household will rise 17 per cent, to about #950. Companies such as Amazon.com, which has seen its shares tumble, are believed to have a rosy outlook if they can survive. Having squeezed out the fast-buck merchants, the internet is set to thrive.